India on fast track to shape perishables logistics trends

The Indian agriculture sector is on the threshold of a major shift from traditional farming to horticulture, meat and poultry and dairy products, all of which fall under perishables. The demand for fresh and processed fruits and vegetables is increasing with urban population together with change in consumption habits. Arising out of this increase in demand, diversification and value addition are the dominating factor in the Indian agriculture today. These changes along with the emergence of an organised retail food sector coupled with changes in FDI laws are creating fresh opportunities in domestic perishables and food industry which includes the cool chain sector. On the other hand, government of India’s new focus on food preservation, the cold storage sector is undergoing a major breakthrough. The government has introduced various incentives and policy changes in order to eliminate production wastage and decide on fair price for harvest, increase PPP and improve the country’s rural infrastructure. It is expected that Indian cool chain industry will attract more overseas partners to learn more about the market to position themselves to take full advantage of emerging opportunities. Cool chains are primarily for fruits and vegetables, meat and marine products, dairy products, ice creams and confectionery, which are perishable. The market can be sub-divided into a number of sectors like agriculture, horticulture, fisheries aquaculture, dairy, processed food for ready-to-eat together with the packaging companies, retailers, wholesalers, etc in the last stage of cool chain. India’s greatest need is for an effective and economically viable cool chain solution that will totally integrate the supply chains for all commodities. From the production centres to the consumption centres, thereby reducing physical waste and loss of value of perishable commodities. The government has laid out elaborate plans and incentives to support large scale investments essential for developing an effective and integrated cold chain infrastructure. Current market scenario The total value of India’s perishables/cool chain industry is currently estimated at $3 billion and is reportedly growing at an annual rate of 20 to 25 percent. The total value of the industry is expected to reach at $8 billion by 2015 through increased investments, modernisation of existing facilities and establishment of new PPP ventures. The most of the cool storage facilities are utilised for a single commodity and are located in the states of Uttar Pradesh, Uttaranchal, Punjab, Maharashtra and West Bengal. The following data (approximate and from industry sources) show commodity-wise capacity distribution of facilitiess: Potato: 9.282; Multi-purpose: 0.763; Fruits & Vegetables: 0.107; Meat: 0.009; Fish: 0.073; Meat & Fish: 0.015; Milk & Dairy Products: 0.068; Others: 0.035. (capacity in million tonnes) Market challenges The perishable/cool logistics industry in India meets a range of challenges that include: Critical constraints in the growth of the food processing industry in India include the lack of integrated cool chain facilities. According to government sources, India has 5,400 cool storage facilities of which 4,875 are set up by private sector, 400 in cooperative sector and 125 in public sector. The combined capacity of the cold storage facilities is 23.66 million tonnes, which can store less than 11 percent of what is produced. There is lack of adequate number of refrigerated vehicles for movement of perishables, (with the exception of milk). According to industry estimates, around 100 million tonnes of perishable cargo moves via non-refrigerated transport and only four million tonnes is transported on reefer trucks. Lack of knowhow and trained manpower: Despite the increasing number of infrastructure projects, there is serious lack of manpower with appropriate skill and training to handle modern technology. Lack of backward and forward integration to supplement cold chain: Cool chain in itself is not a complete solution to address quality and marketability issues concerning perishable products. Viability issue concerning cool chain projects: Cool chain projects are seen by investors as high on capital, low on volume and requiring long payback period for the investment. High capital investment: A high level of capital is required at the initial stage of building a high-end cool chain facility. High operational costs due to high cost of power: The cool chain industry does not enjoy highly subsidised power tariff like the agricultural sector. Problems of optimisation in reefer transportation: Lack of two-way cargo movement, back haulage, inter-state barriers, intercity/state taxes which increase operating costs and delay in time-definite deliveries and so reduce the efficient utilisation of fleets. Frequent fuel cost escalations arising from government decision are not adequately compensated by customers. All customers equate operation cost of reefer vehicles with those of non-reefer vehicles resulting in under coverage of cost in respect of reefer vehicles. Road conditions except for National Highways are pretty bad causing breakdowns and freak accidents. This also adds to vehicle maintenance cost, and transit time is thus longer than normal. Costs of operation of reefer vehicles are relatively higher as compared to normal transportation. Very often vehicles are detained at various sales tax check posts causing excessive consumption of fuel for running AC system during detention. There are numerous road blocks in terms of compliance of sales tax regulations of different states, sales tax check posts at state border and toll tax at numerous points. All these cause not only delays but increase the cost of operation. It is expected that only implementation of goods and services tax would reduce this issue. On certain routes, plying vehicles at night are not possible with the fear of getting robbed or any mischief being played by miscreants. Transporters do not have insurable right for the cargo the vehicle carries. Truckers expect that the clients will take insurance cover in transit. In absence of this, additional burden comes to transporter. There is a system for carriers taking legal liability coverage for the cargo, but the process of making insurance claim, when arises, is very protracted and above all, any loss arising out of AC failure is not entertained by insurance companies. The rising influence of India in the world perishable markets remains one of the key trends for the international perishables business as it heads into the next step of the future. Perishable commodities mainly constitute fresh cut flowers, live plants, dairy products, fish, meat, fruits and vegetables, live animals, hatching eggs, confectionary and foodstuff. Long transit times and poor handling lead to spoilage and waste, not to mention potential foodborne illness. It is estimated that each year some 25 percent of foods produced go waste. Waste creates a new set of environmental issues as food waste converts into water waste and a host of greenhouse gas emissions. Speed-to-market and reduced costs are the results of highly advanced technology, meticulous planning and professional, efficient handling. There are several forces driving new thinking about faster, more efficient perishable transportation. The ever tightening refrigerated transport capacity, driver shortages, stricter hours of service mandates for drivers and equipment shortage are all contributing to a “reefer” transport segment that is in a state of tension. In addition, shippers are increasing pressures to reign in rates and are asking for tighter in-transit quality controls. In India, over the years, specially in the last 15 years, perishable logistics technology has advanced dramatically. Today, the industry has no problem bringing a product to a warehouse and delivering it within 24 hours without losing a degree (in temperature) from when the product was first picked up. Perishables trade is now using technology to perform testing on the dry ice and on the coolers to ensure the packaging is the best. With a middle-class consumer base due to reach an estimated 583 million by 2025, India is likely to drive growth in consumer spending in Asia as a whole, but the country’s perishables logistics chain expertise and infrastructure are still in need of significant improvement if they are to cope with such growth. The country is yet to address different perishable supply chain issues such as rising cost, capacity crunch, quality and regulatory pressures before it could reach a status to offer the customers a total logistics service which will be a key link ‘from farm to fork’. n